Presentation Transcript

CHAPTER 17 :

1 CHAPTER 17 Understanding Principles of Accounting

Chapter Outline :

2 Chapter Outline What Is Accounting and Who Uses Accounting Information?
Who Are Accountants and What Do They Do?
Tools of the Accounting Trade
Financial Statements
Analyzing Financial Statements
International Accounting

What Is Accounting and Who Uses Accounting Information? :

3 What Is Accounting and Who Uses Accounting Information? Accounting is a comprehensive system for collecting, analyzing and communicating financial information
Bookkeeping is the recording of transactions

What Is Accounting and Who Uses Accounting Information? :

4 What Is Accounting and Who Uses Accounting Information? Accounting information system (AIS) is an organized means by which financial information is identified, measured, recorded and retained for use in accounting statements and management reports

Users of Accounting Information :

What is a Controller? :

6 What is a Controller? Person who manages all of a firm’s accounting activities (chief accounting officer

Who Are Accountants and What Do They Do? :

7 Who Are Accountants and What Do They Do? Financial Versus Managerial Accounting
Financial accounting system is concerned with external information users
Managerial (or Management) accounting system serves internal users

What is an Audit? :

8 What is an Audit? Systematic examination of a company’s accounting system to determine whether its financial reports fairly represent its operations

What is GAAP (or Generally Accepted Accounting Principles)? :

9 What is GAAP (or Generally Accepted Accounting Principles)? Accepted rules and procedures governing the content and form of financial reports

The Accounting Equation :

10 The Accounting Equation Assets = Liabilities + Owners’ Equity

The Accounting Equation :

11 The Accounting Equation Asset is any economic resource expected to benefit a firm or an individual who owns it
Liability is a debt owned by a firm to an outside organization or individual
Owners’ equity is the amount of money that owners would receive if they sold all of a firm’s assets and paid all of its liabilities

What is Double-Entry Accounting? :

12 What is Double-Entry Accounting? Bookkeeping system that balances the accounting equation by recording the dual effects of every financial transaction

Slide 26:

26 Profitability Ratios Net Profit Margin (or Return on Sales)
Profitability ratio indicating the percentage of its income that is a firm’s profit Return on Equity
Profitability ratio measuring income earned for each dollar invested

Slide 27:

27 Profitability Ratios Earnings Per Share
Profitability ratio measuring the size of the dividend that a firm can pay shareholders

Slide 28:

28 Activity Ratios Inventory Turnover Ratio
Activity ratio measuring the average number of times that inventory is sold and restocked during the year